Earnings and profit are by no means identical
Of course, money does have its limits. Perpetual youth or health cannot be bought. No amount of money in the bank will guarantee that true love will be reciprocated. For someone lost in the desert without water, no fancy equipment and no amount of money can bring salvation: mustering your last energies and pulling a pen from your pocket to write a check for a billion dollars won’t put a drop of water in your mouth.
Nonetheless, these and other limits detract little from the magnetic attraction of wealth. Whether you are a thief or earn your money legitimately, success means having more money at the end of the month that at the beginning. When we hear that someone earns some fantastic income, and when newspapers publish that person’s newest ranking in the list of the nation’s wealthiest people, then money becomes a decisive measure of that person.
Individual employees and businesses use balance sheets to measure their success. A person whose monthly earnings exceed expenditures has every reason to be happy. He or she can save the money for a rainy day, invest it profitably, or fulfill some long-held dream. The same holds true for a company. If at the end of the day the balance is positive, then the world seems rosy. At the same time, a whole range of companies that once provided their shareholders with very comfortable dividends ended up bankrupt only a few years later. Even more astounding is the fact that, after World War II for example, businesses that had been leveled by bombing and whose balances had dropped off the screen, rose like phoenix from the ashes. After only a few years, housed in freshly built factories and sporting brand new means of production including qualified employees, these enterprises once again lined up at the forefront of industry as if nothing had ever happened.
Have we missed something? Factors beyond money are apparently at work here. Something that is equally powerful, if less glittery and alluring, but no less effective in guiding economic fortunes.
As early as 1959, Mewes published a document with the remarkable title “All balances are incorrect” in the framework of a course on tax law. In a detailed analysis that cited numerous practical examples, he pointed out that a one-sided emphasis on money can lead to entirely incorrect assessments with unpleasant tax law implications. “Bookkeeping captures only one category of business processes, namely processes involving capital. The remaining social processes remain undetected. For example, you can read off that capital gains were precisely 312,241.14 German marks, but you may fail to recognize that consumer trust has become eroded.”
“Immaterial values”, which the tax system largely ignores, are often equally if not considerably more important than “material and financial assets.”
Crucial “immaterial values” might include the company’s clientele, the prestige it commands, its public image, customer loyalty, the trust that customers have in a company’s products and services, or with the status and popularity associated with those goods. If a company falters in these sectors, for example if deliveries are not met, if quality deteriorates, service lags, or prices hit the ceiling, then repercussions are inevitable. Mewes writes: “Current economic thought is capital oriented. This means that capital gains are the focal point of all calculations, balances and planning. Businesses and their managers have many goals, but the top priority is to increase profits and company capital. These criteria are used to judge a company’s success and managerial competence.” “While efforts to accrue capital do boost profits and fill company coffers, the businesses and their owners tend to become increasingly isolated from the public at large.” In the past, capital and means of production received top priority; today, market shares have become more important. An advertising campaign for the detergent brand “Persil” openly acknowledged this by stating: “A company’s most important capital cannot be found in any balance sheet.”
Other important immaterial values include name recognition, the strength of ties with dealers, and the skill of the sales organization. In many sectors the retailers ultimately decide which products they want to promote. Other factors include contacts with authorities, suppliers, financial backers and influential opinion-makers. They are often in a position to determine what comes on the market.
At another level, immaterial values that can determine success or failure but that never appear in balance sheets are the working atmosphere, the working conditions, and the social benefits that can motivate employees. Their loyalty to the workplace, their know-how, ideas and innovative energies are crucial. This is that level where our social instincts kick in – at least more so than the chance encounters in our anonymous society. Why? Because small and medium-sized companies probably more closely resemble our historical, ancestral clans in size. We are instinctively programmed to respond to such dimensions, and the more a company resembles an extended family – the more we feel “at home” and actually enjoy our work – the more reliable our output.
In my comparative studies of organisms versus human economic structures, I determined that directly acquired energy alone – or money as a proxy for energy – failed to define actual competitiveness. Many plants and animals are known to exploit beneficial environmental conditions, and this strategy is even more important for employees or companies. This can perhaps be best illustrated in what I term the “horse and rider relationship”: putting energy to work need not necessarily involve the long detour of eating, digesting, and tedious biochemical conversions. Rather, energy can be tapped directly to power organs or to boost overall performance. The rider makes the horse into an organ of transportation without having to munch oats in the morning. When fish drift with currents, or spiders sail across fields and forests dangling from a modified thread, then the harnessed environmental energy works directly on their bodies and need not be consumed and converted. Humans take advantage of the same strategy. The miller utilizes water energy from a stream to force a millwheel to grind the grain. This energy is tapped without going through his or her body. When the cuckoo bird tricks another bird into brooding and rearing its young, then outside energy has once more been tapped, sparing that bird from expending valuable “food energy” for this function. Ivy and lianas climb the trunks of other plants to expose their leaves to sunlight. In doing so, they save energy that others must devote to forming trunks, an “expensive” burden. These latter examples all reflect predatory strategies that help save energy – and there is no lack of equivalents in the business world either. Every form of advertising that “piggy-backs” on some image that potential customers can identify with, is riding the same wave.
In business transactions, tapping beneficial “environmental” forces is also common: it creates the immaterial values that boost worker or company efficiency. Every friend that we rely on to help us, every “connection” we tap to promote our project or company, becomes – for the duration of that assistance – an organ that works for us. These may not be permanent fixtures of our bodies or our companies, nor is their service continuous. Nonetheless, they still fulfill some task, still benefit us in some way. “Immaterial” is perhaps not the best term for these beneficial forces and conditions because they are actually based on material structures. To our sensory apparatus, however, they appear to be distinct from the capable entities we form.
Othmar Spann coined the phrase “implementation supercedes the implement”, meaning that when we need to get some job done, the quality of the job is more important than the nature of the organ doing the work. In this sense, the Energon Theory views both businesses and organisms as capable entities more than mere material structures. Both can be measured better by the tasks they perform than by their component organs. The organ’s material composition of the organ, its origin, and whether or not it is permanently attached to the overall body is secondary – output counts. A common feature in the animal kingdom is that entirely different organs often accomplish analogous tasks (for example the insect eye versus the mammal eye). The situation in the business world is no different – consider the many functions that machines have taken off our hands in the last 50 years.
From this perspective, we can much more easily enter beneficial immaterial values into overall evaluations and balances. While it is true that we still have more difficulty quantifying the effect of loyal customers, motivated employees, a good image, a name brand etc. than tallying debits and credits, new statistical procedures now allow us to factor in these elements as well. This is particularly important when the price of a business needs to be set during a takeover bid. No experienced businessperson would ever rely solely on balances and inventory. The resulting “true value” may end up being significantly higher or lower than the “book value.”
If we view organisms and businesses as capable entities – perhaps most akin to energy fields – then factors such as customer loyalty, know-how and good connections quite naturally become integral parts of the overall energetic structure. Customer loyalty then means altered behavior: the client becomes inclined to take some positive course of action. The same holds true for a befriended civil servant who helps you navigate a complicated bureaucratic formality. From outside we see no physical connection, but the interrelationship is much like that of a magnet that moves the iron filings about without any direct contact.
The additional organs that we designate as immaterial values and that we fabricate so extensively (compared with animals or plants) have come to play an increasingly important role in the business world. Examples include rapidly improving means of transportation and ever faster information flow, all enhanced by successive generations of microelectronic gadgets. Mewes was absolutely correct in pointing out the good prospects of companies with excellent “immaterial capital”. I refer to extreme cases as “cybernetic businesses”, i.e. where a single individual with the right know-how drums up the best collaborators and companies for each particular job and who can create something without necessarily having production means of his or her own. We have already discussed case studies such as those of Kürner or the successful coffee roaster; these enterprises ultimately became cybernetic businesses because their owners were able to earn a living by leasing their know-how, spawning similar business structures in other cities. In effect, the entire activity had been delegated to others.
The following lines that Mewes wrote are fully in line with OBS teachings: “It is an old pitfall to think that every business must actually own the factors it works with. This is simply incorrect. These factors need simply be available in some form. Traditional economic thought has held that most of a company’s working capital should be company capital. This dogma has been shaken, and the percentage has been steadily decreasing over the past decades. Banks and insurance companies tend to have the lowest values (often under 10%). Interestingly, these very sectors have become social powerhouses and have shown the strongest growth. Attractiveness rather than company capital is the bottom line.”
Mewes developed guidelines for a “dynamic balance” designed to enable companies to better control all those forces – including immaterial values – crucial to their health. This is the only strategy that enables a company to quantify whether it is developing in the right direction or not49. Those business that had been bombed out during World War II or that were dismantled and shipped away in its aftermath (at a total loss of production means and financial reserves) simply had a strong enough image to fully compensate for these losses. They were the first to receive credit, and former employees who survived the war were the first to line up at the gates for work.
Mewes’ “dynamic balance” is backed up by the standard profit and loss accounts. In a first overall index, “the figures in the annual balance are condensed to show the key changes – this cuts through the incomprehensible jumble of numbers that often hinders a true evaluation of the situation.” The second overall index then concentrates on a more holistic view: “traditional balance sheets focused on the development of a single factor, namely capital, whereas the holistic overview focused all senses, efforts and resources on the respective minimum factor by examining the shortages, dependencies, and synergies in all the relevant factors”. This form of balancing admirably complemented the overall EKS concept. The first step was to eliminate one minimum factor, then concentrate on the next. The feedback from all those involved served as an “autopilot.” The steady dialog with the target groups becomes an important part of the process.
From the OBS perspective: is this form of balancing, originally developed for businesses, also applicable – in modified and simplified form – for individual careers or even personal improvement? If we want to improve our quality of life and attain happiness, this becomes an issue, i.e. we must strike a balance between the value we attach to our income versus that attached to growing immaterial values.
The psychosplit tends to reek havoc on such considerations because money, as an overpowering key stimulus, automatically diverts our attention from the immaterial values and their significance. The first part of this book devoted considerable space to explaining our innate drive to earn money by one means or another. Since money promotes all innate drives and can fulfill virtually all of our wishes, our other drives all amplify the central drive for money (Fig. 9). Once we understand the underlying mechanisms, however, we can relegate money – the most powerful organ we ever created – to its role as a valued servant rather than manipulative tyrant.
The irony is that the overpowering drive for money is reinforced by practically every key stimulus we encounter; this effectively hinders us from maximizing our earning potential. The psychosplit directs us toward the quick dollar, causing us and everyone else to miss valuable sources of income. All that glitters exerts a magic pull. The result? We fritter away our energies and devote too much thought to unprofitable activities. The drive for money becomes a weapon that turns on its owner.
This drive also works to our disadvantage by breaking the transaction or barter process down into two increasingly separate phases. In principle, putting food on the table is an indivisible process that was once direct (predation) but now indirect (via money). Money allows us to do more than merely purchase food and other necessities. It allows us to satisfy almost every instinctive need and most personal desires. This means that the indirect transaction process – obtaining what we need by selling products and services – becomes decoupled from the original aim of the transaction (direct exchanges for food still exist in underdeveloped or famine-plagued peoples). Ultimately, the second half of the act can recede into insignificance, leaving greed (for money, things, and power) a new central pursuit in life. Many oh-so-envied millionaires and billionaires fall into this trap. They are no longer in a position to actually spend their money for comfort and pleasure. Many die of stress-related symptoms, and the accumulated wealth ultimately goes to heirs who put the money back into circulation.
As opposed to most innate and acquired drives, the central drive for money has no “consummatory act” that shuts it down. If we are hungry and eat, then our hunger is stilled for a certain period. If our sexual drive triggers appetitive behavior and we find the right partner, then that drive, which in some is strong enough to trigger criminal acts, is stilled. If we are sleepy and go to bed, then we wake up refreshed. If we are in an aggressive mood and can take that aggression out on some object, then our mood tends to be more peaceful. The same holds true for acquired drives. If we devote all our energies to getting a car, and we finally get that car, the matter is put to rest. The drive for money, however, has no discernible endpoint because our fantasy knows no bounds. Our fear of accidents, illness, war and death also play a role. Money lends security. But it can also enslave us.
I once met a man in Samoa who showed me the exact opposite strategy. Nature is friendly there, life peaceful, and this man took each day as it came. He hung around with his friends, laughed, joked, enjoyed watching pretty girls walk by. If he needed a new shirt, then he would ask the price. And then get a job that would pay precisely that sum. After completing the job, he would buy the shirt and go on his merry way.
In our modern world, that strategy has become totally
unfeasible. That islander, however, lived the most pure form of acquisition
by the two-tiered transaction or barter process. That harmonious approach
does show that money is a means and not an end, a servant and not the master.
One way forward would be to enter into an ongoing inner dialogue to determine
what our personal goals are and what motives we have in pursuing them,
with equal weight being given to earning money and gaining immaterial values.
Back to the Table of Contents
Continue to "8th Consequence: Employees are not production means and employers not the horn-of-plenty"